Yes, its back; and BR Research has been highlighting that it will be back soon in its last couple of petroleum sales updates (For details, please see “Petroleum sales under pressure”, published on May 04, 2018; and “Furnace oil coming back”, published on April 10, 2018). Though furnace oil sales by the oil marketing companies have been inching up since the beginning of the summer season, this particular petroleum product has seen a staggering growth in May 2018, up by more than twice on a month-on-month basis (and almost flat on a year-on-year basis). Petroleum imports that were also kept restrained and banned for some time are up accordingly since around 70 percent (on average) of the demand historically has been met through imports.
However, the story behind the increase in furnace oil consumption is not surprising. It is also definitely not new. With the rise in mercury levels, increased power demand in the country has largely necessitated the reversion to furnace oil. The situation has been aggravated despite the increased generation capacity claimed by the previous government mostly on account of low hydel generation as well as delay in some key capacities. Nonetheless, the overall furnace oil volumes sold during the 11MFY18 by the industry still remained 24 percent down as compared to 11MFY17 as the last six months have seen lower volumetric sales amid government’s plan to gradually phase out FO.
On the retail side, things seem normal. Stable growth has become a new normal for motor gasoline and high speed diesel. The two depicted an increase of 4 percent and 2 percent year-on-year, respectively - driven by high car sales, commercial vehicle sales and high construction and infrastructure activity.
Going forward, the outlook for these petroleum products rest on some price-related factors. Rising prices for petrol and diesel like recently can stifle the demand for retail fuels, especially petrol. Continued increase in international oil prices along with the rupee depreciation and late government’s higher sales tax and Petroleum Levy envisioned in Budget FY19 are key factors that could affect demand. Secondly, the announced reduction from 20 percent to 17 percent on FO could boost the demand further if FO continues unabated.
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